An option represents a contract where one party offers another party the right to buy or sell one or more shares of an asset at an agreed-upon price during a certain period of time or on a specific date in the future in exchange for consideration (typically money). The asset is often a stock but the asset can also be a derivative, a commodity or a security of any kind, including, but not limited to, any note, bond, future or exchange-traded fund. The right to buy an asset (often referred to as the “underlying”) such as a stock (often referred to as the “underlying stock”) at a certain price within a specified period of time is typically referred to as a “call.” The buyer will generally purchase a call with the expectation that the value of the underlying stock will increase before the option expires, thereby enabling the holder of the call to purchase shares of the underlying stock at a lower price than the then current trading price.
Conversely, the right to sell a stock at a certain price within a specific period of time is referred to as a “put.” The buyer of a put typically does so with the expectation that the value of the underlying asset will fall before the option expires, thereby enabling the holder of the put to sell shares of the underlying stock at a price higher than the then current trading price of the underlying stock shares. A stock option also is known as a derivative instrument; this means that the option derives its value from an actual underlying asset, such as a stock, or any other kind of security, commodity or derivative. The following discussion uses the term underlying stock or stock in describing the preferred embodiments of the present invention. It is noted that an alternative asset such as any other type of security, commodity or derivative can also be used in place of the terms underlying stock or stock.
Each option is typically identified as a “series.” A series includes an option class symbol relating to the underlying stock, a month and a strike price. A series also commonly includes a put or a call reference. For example, “IBM May 80 call” refers to a call option for International Business Machines, Inc. expiring in May of the current year at a strike price of $ 80 per share. In this example, the option class symbol matched the symbol of the underlying stock. Options are typically created for the short term with an expiration date of less than eight months in the future or as Long term Equity AnticiPation Securities™ (“LEAPS®”)1. LEAPS® are options that expire more than nine months into the future and currently extend as long as two years into the future. A two character Options Price Reporting Authority (“OPRA”) series indicator is typically assigned to each series. The first character indicates the option's expiration month and whether the option is a call or a put and the second character is a strike price indicator. OPRA is the governing authority for collecting, processing and disseminating options quotations and last sale information from all the U.S. national securities exchanges that trade options. OPRA is owned by of all the U.S. options exchanges. 1 Long term Equity AnticiPation Securities™ is a trademark of the Chicago Board Options Exchange, Incorporated (“CBOE”) and LEAPS® is a federally registered trademark of the CBOE.
The strike price of an option refers to the price the underlying stock must fall above for calls, or fall below for puts, before the option can be exercised for consideration. A stock option whose strike price is equal to the current market value of shares of the underlying stock is said to be “at-the-money” or “ATM.” A call option is classified as “in-the-money” if its strike price is less than the current market value of a share of the underlying stock. For example, a Microsoft June 50 call option would be in the money if Microsoft is trading above 50. Conversely, if the strike price of a call is greater than the market value of the underlying stock, it is considered “out-of-the-money.” For example, a Microsoft Jun. 50 call option would be out of the money if Microsoft is trading below 50.
An option must be exercised before its maturity or expiration date in order to avoid a complete loss in value of the option. The holder of an option, depending on whether it's a call or put option, is given the right to either buy or sell shares of the underlying stock associated with the option. The holder has the right, but not the obligation, to exercise the option before its expiration date.
Options are traded publicly on many exchanges throughout the world. The potential loss to a buyer of an option (e.g., the right to buy or sell a stock) can be no greater than the initial premium paid for the contract, regardless of the performance of the underlying stock. Conversely, the seller of the option, in return for the premium received from the buyer, assumes the risk of being assigned the obligation to buy or sell the underlying stock if the option is exercised.
Market-makers establish a two-sided market by providing a bid quote and an offer quote for a number of option series of an underlying stock. In options trading, access to current trading information is critical to market-makers, traders and other users. Market-makers and traders require immediate access to the specific trading information of interest. The ability of a market-maker or trader to easily access required trading information allows such traders to act quickly and efficiently to protect or hedge their positions or to take advantage of immediate market fluctuations.
A number of products and systems currently exist for providing option trading information to exchanges, market-makers, traders and other users. Trading systems currently provide options data to traders at member firms on screens that are somewhat similar to those available on the trading floor of an exchange. Member firms are firms that are associated with or are members of an exchange.
One existing option display system displays option information produced by a specific exchange, for example, the Chicago Board Options Exchange. The system enables a user to view a class of options for an underlying stock in different formats. In one format, as illustrated in FIG. 9, a list of options for a specific underlying stock and a specific expiration month is displayed along with current trading information for calls and puts for each option listed from a single, specific exchange.
For example, the first column can list options for an underlying stock at a specific expiration month in ascending order by strike price, Apr. 65.00 IBM to Apr. 155.00 IBM. The call trading information for each option is then displayed in the next set of columns including the two character option series indicator, the last traded price for the series, the change in that price, the bid price and the ask price. The put trading information is then displayed in adjacent columns with the same data points as the just listed call information.
In another display format, illustrated in FIG. 10, a list of options for a single underlying stock and by the same expiration month from a single specific exchange is displayed in ascending or descending order by strike price. Each row includes a single option call series and includes data on the last price, the change in price, the bid price, the ask price, the high price for the day, the low price for the day, the open interest, the volume and the time of the last trade. In this format, each series occupies an entire row extending across the width of the display. Accordingly, each series must be displayed on a separate row. The system enables the user to show a list of call series, a list of put series or an alternating list of calls and puts for a single underlying stock for a specific expiration month in ascending or descending order by strike price.
In another display format, illustrated in FIG. 11, a list of options for a single underlying stock in ascending or descending order by strike price for up to three different expiration months is displayed. For example, the first group of columns can list the strike price, put or call, and the underlying stock symbol, the next group of columns would show the last price, the bid price and the ask price for a specific expiration month. One or two additional groups of columns can also be displayed with each group of columns covering the next expiration month. In this particular format, the option data from a specific exchange for a specific underlying stock with the strike price listed in ascending or descending order for up to three separate expiration months is displayed.
A different existing option information display system displays only the National Best Bid and Offer (“NBBO”) trading price information. The NBBO refers to the best available bid and ask price data from all the exchanges currently trading the option. Market data from the U.S. options exchanges is processed through OPRA. Many exchanges calculate the NBBO data using OPRA data from other exchanges and their own trading data. Some financial products are traded only on a single exchange. In such instances, the trading information for such a financial product at the single exchange is also the NBBO trading information.
This existing NBBO data display system includes displays similar to the other product described above. As illustrated in FIG. 12, call and put options can be displayed on a single row for a class of a specific underlying stock, a specific expiration month and specific strike price with six columns of data on either side of the series listing. Alternatively, as illustrated in FIG. 13, a single option series can be listed on an individual row along with twelve columns of additional data relating to the displayed series.
Existing option market data display systems and products have a number of drawbacks. Existing option market data display systems are not user friendly and are typically difficult for a user to manipulate. Existing option market data display systems do not focus the users attention to the ATM option series (typically the most actively traded series). Moreover, existing options market display systems do not enable a user to view several series at or near the ATM strike price for one, two or three different underlying stocks. Additionally, no product or system enables a user to quickly and easily view the trading information for a specific underlying stock, at or near the ATM strike price for several expiration months into the future.
Thus, there is a continuing need for an option display method and system that is user-friendly, configurable and able to quickly and easily supply users with the exact option and underlying stock information they desire. This system should display NBBO option trading data and the option trading data of a specific exchange or other type of trading facility on a single, easy to view display. This system should enable a user to select a specific option exchange's trading data to be viewed separately or in conjunction with the NBBO data. This system should illustrate the data in a focused manner emphasizing the most actively traded options. This system should be able to display option trading information for an underlying stock including one or more classes, and several series at or near the ATM strike price over several future expiration dates. This system should provide an option trading display system that highlights the bid and ask amounts that indicate those specific exchange quotes that are inferior to the NBBO quotes and those quotes that are recent updates.